What is Ethereum? Here is what you need to know

You may be asking yourself, “What is Ethereum?” Well, Vitalik Buterin, a Canadian programmer born in Russia, invented Ethereum in 2015 by. It’s a cryptocurrency much like Bitcoin that allows you to make payments online. It’s decentralized, offers low transaction fees, and runs on a publicly disclosed blockchain that records each transaction.

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Ethereum’s currency is called Ether and is currently the second largest in the world in market cap, behind Bitcoin. There are reportedly around two million wallets that hold it, up from 1.6 million in May — showing the growing popularity of Ether.

How is it different from Bitcoin? Bitcoin aims to become a globally adopted currency that could improve or even replace conventional money. Ethereum, on the other hand, is more than a cryptocurrency. It’s also a ledger technology used to build decentralized applications (dapps) with smart contracts.

What are smart contracts?

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Smart contracts are programs that automatically execute exactly as they are set up by their creators. Their purpose is to offer more security by removing the middlemen that we would otherwise have to use. Confused? Let’s take a look at a simple example.

Let’s say you want to ship a large gift to your friend and hire a trucker to do the job. For the trucker to know you’ll pay him, and for you to be sure the delivery will be made, you both sign an agreement for shared peace of mind. This takes time and can be expensive, as you need someone who will draw up the paperwork for you, and so forth.

This process can be simplified with a smart contract. You make the payment the day the package is picked up, and the smart contract will automatically transfer the money to the trucker as soon as your friend confirms the delivery has been made.

How is Ether created and where can I get it?

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Like Bitcoins, Ethers are created through a process called mining. This requires expensive and specialized computers that have to perform complicated calculations. Mining is mainly done by large companies that are compensated for their work with newly minted Ethers.

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Unfortunately, you won’t make any money by mining with your personal PC, even if it’s a high-end model. So how can you get your hands on Ethers? You can earn them by providing goods and services to people who can pay you with the digital currency. The second option is to buy them from a marketplace like Coinbase with your credit card.

The Ethers you own are stored in a wallet secured with a private key. You can keep it in the cloud or offline, with the latter being a much safer option. The important thing is that you don’t lose the private key. If that happens, you won’t be able to access your money.

How much does it cost and what determines the price?

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Now that we have figured out the answer to the “What is Ethereum?” question, how much do Ethers really cost? Ethers were cheap when introduced back in 2015 — you could get one for less than a dollar. Their price has risen over the years and currently stands at around $430 each (exact value can be found in widget below). The sharp increase means Ethers can be a great investment, same as Bitcoins and many other cryptocurrencies. For example, if you bought $1,000 worth of Ethers in 2015 when they were worth $0.50 a piece, you would have $860,000 today.

Before you get too excited, keep in mind that investing in cryptocurrencies can be risky.

Before you get too excited, sell your house, and buy as many Ethers as you can get, let me remind you that investing in cryptocurrencies can be risky. Sure, a lot of them have increased in value in recent years, but that doesn’t mean this trend will continue. Cryptocurrencies are volatile, meaning their price can go up and down significantly in a single day. This makes them less stable than standard currencies like the dollar and euro.

How exactly do we determine their value? Like Bitcoins, gold, oranges, and every other item available on the market, supply and demand determine the price of Ethers.

The Merkle

Ethereum can be hard to understand at times. The same goes for Bitcoins and the rest of the cryptocurrencies available. But the fact is that they’re here to stay and might become a more important part of our daily lives in the future.

Many experts believe Ethereum has a lot of potential and could overtake Bitcoin as the largest cryptocurrency somewhere down the line. This is all speculation, though well within the realm of possibility. But like with stocks, gold, and other investments, no one can be 100 percent sure in which direction the price will move.

Hopefully we have given you an answer to the “What is Ethereum?” question. What are your thoughts on Ethereum and cryptocurrencies in general? Let us know in the comments.